Years ago, when I started consulting with nonprofits, a brand new CEO sought me out. His role had been empty while the board conducted an exhaustive search after his predecessor had left. The search crossed over the fiscal year, and the board had “helpfully” led the annual planning process so they could hand the new CEO a prepared budget to execute against.
The CEO asked me to evaluate the budget, focusing in particular on the marketing & earned revenue targets, as he had no background in those areas. It was the most unrealistic revenue budget I had ever seen (and, I spent much of my career in the airline industry, the home of wishful-thinking-revenue-plans!).
Being a consultant, my job is to be the voice of reason, so I presented my findings to the board. They had approved a 40% year-over-year earned revenue increase with no new strategy, no new investment in advertising, no new products or product plans, and no revenue generating capacity. As I was discussing this with the board members – who were adamantly not making eye contact with me – I asked how many of them would sign up for a similar target for their own businesses. After a long, uncomfortable silence, one of them ventured, sheepishly, “Maybe we thought it was a stretch goal?”
Ah, the stretch goal: fiction’s gift to the world of financial planning.
Last year Our Fundraising Search published a popular blog entitled “Why Can’t I Retain Good Fundraisers?” In it, we quoted research conducted by E.A.Locke and G.P. Latham into motivation that demonstrated that, while employees will be motivated by difficult-but-achievable goals, impossible goals completely demotivate the employee. Worse, they often lead to turnover. Yet so often, nonprofits buy into the idea that an impossible goal is just a “stretch goal.” Let’s first talk about the difference, and then talk about why most nonprofits need to avoid this mindset.
A stretch goal is a goal that is extremely difficult to achieve because they involve radical expectations that go beyond current capabilities and performance. Because of that, new processes, ideas and approaches are required. It is not simply a case of working harder.
By contrast, an impossible or unrealistic goal is one that is simply not practical or obtainable. These goals are set by individuals or teams with unrealistic expectations of their abilities and potential. Calling it a “stretch goal” does not make it any more obtainable, nor does it reduce the risk of losing good employees.
And yet, many times, our boards call for stretch goals.
In 2017, Harvard Business Review (HBR) published The Stretch Goal Paradox, documenting the excellent research conducted by Sim B. Sitkin, C. Chet Miller, and Kelly E. See. In their paper they found that audacious targets are widely misunderstood, and widely misused by many for-profit companies. Their research showed that the organizations that would most benefit from stretch goals seldom employ them, while the organizations “for which stretch goals are probably not a good strategy often turn to them in a desperate attempt to generate breakthroughs.”
Neither approach is likely to be successful. This is what they called “the stretch goal paradox.” The problem also exists in nonprofits.
So, what determines which organizations should set stretch goals? Two factors: (1) recent performance and (2) slack resources.
First, in order to achieve stretch goals, a nonprofit should already be a high performing organization. Remember, these goals require a high level of innovation. That requires a highly effective team. Many, but not all, nonprofits have these teams. If the organization does not, then it is not well positioned to take on this type of goal.
If the organization is experiencing weak results, this is not the time to attempt to “challenge them to accomplish the impossible.” Per Sitkin, et. al., “Their employees are more likely to see a stretch goal as a threat, grasp for externally sourced quick fixes, exhibit fear or defensiveness, and launch new initiatives in a chaotic and ultimately self-defeating fashion.”
The second factor, and an arguably bigger barrier for a nonprofit, is slack. Slack is not a term widely used in the nonprofit sector because most of us don’t have it. Resource slack refers to the level of availability of a resource. Said simply, slack is resource abundance, the opposite of resource scarcity or resource constraints.
“The second and even more critical factor is the availability of resources in an organization. If the supply of money, knowledge and experience, people, equipment, and so on exceeds a firm’s needs, the surplus can be used in a discretionary way. It can help organizations search broadly for ideas, experiment with them, and remain committed in the face of setbacks. Well-resourced organizations are better positioned to absorb failures that come with trying a variety of new ideas—not just because they have funds to move forward but also because they have emotional reservoirs that increase their resilience. On the other hand, in organizations that are strapped, managers have a harder time conducting and sustaining experiments and may jump at Band-Aid approaches that rarely succeed and are hard to learn from.”
Almost no nonprofit leader is blessed with an abundance of money, knowledge, people, etc. that would position them “to absorb failures that come with trying a variety of new ideas”. That is precisely what makes leading a nonprofit so much more challenging than leading a for-profit company.
Interestingly, the HBR article goes on to point out that “organizations with strong recent performance and slack resources are in the best position to benefit from stretch goals. Yet such organizations are unlikely to reach for the seemingly impossible, because success tends to create risk aversion.” Since almost none of us fall into that category, we won’t spend time exploring why.
So, what are the lessons here for good boards, CEOs and executive directors?
First – and we’ve written of this before – avoid the temptation to exclude the chief fundraising officer from budgetary planning. Don’t buy into the trope that the fundraisers will sandbag budgetary goals. If your fundraiser says a goal is too audacious, take their word for it. They are the expert, and if you adopt a goal they don’t agree with, you will most likely lose them and fail to achieve the goal.
Second, do not build stretch goals into the fundraiser’s compensation model. There is an unethical, and yet all-too-common practice of adding a bonus structure for stretch goals into a new-hire’s compensation package. It does not work, it is not a sufficient incentive, and it will increase, not decrease, turnover.
Lastly, be skeptical of extreme goals. Double-digit increases in revenue, margin, or productivity must be deeply scrutinized. Are the basic, underlying assumptions solid? Does the organization have detailed and well-researched plans to achieve them? Does the team have the track-record and slack to justify them?
If not, it is not a stretch goal. It is wishful thinking.